Understanding Islamic Finance #
Original question: “Salam IFSG! Got a quick question. Allah says Riba is haram in the Quran. However in Singapore’s context, does that mean we cannot take loans with interest to buy a house/car etc? Does that fall under category of darurah?”
The prohibition of riba is not only in the Quran, but also stated in the Prophet sayings (ahadith) in great length, from explaining the types of Rrba to describing the sins and punishments of those associated with it.
For example, it was narrated Samura bin Jundab (رضي الله عنه) narrated The Prophet (ﷺ) said, “This night I dreamt that two men (Angels) came and took me to a Holy land (whence we proceeded on till we reached a river of blood, where a man was standing, and on its bank was another man standing with stones in his hands. The man in the middle of the river tried to come out, but the other threw a stone in his mouth and forced him to go back to his original place. So, whenever he tried to come out, the other man would throw a stone in his mouth and force him to go back to his former place. I asked, ‘Who is this?’ I was told, ‘The person in the river was a riba-eater.” (Sahih al-Bukhari, hadith no. 1386 and 2085).
However, as a Singaporean Muslim living in a democratic secular state with limited Islamic products and services available, there is a different degree of Shariah principles applied concerning Riba rulings. The yardstick of these shariah principles changes according to the situation and circumstances of the matter, along with the necessities (darurah) or needs (hajah) of the people.
Before answering the question on whether house loan, car loan, fixed deposits, and insurance are lawful (halal) in Singapore, several concepts need to be clarified and fathomed before we can adequately address the question fairly.
Firstly, riba in debt only occurs when the exchange of two identical items is not at par—for example, lending $100 for $120 or loaning an apple for two apples. Riba also occurs when there is an increment to the principal amount due to any deferment of settlement.
Secondly, judgment (hukm) on a particular matter is based on knowledge and understanding of the matter. This implies that a hukm on contemporary matter may change and have differing views depending on knowledge the scholar has on a particular matter and its evolving nature. Hence, it is natural for scholars to have differing opinions since they may have a different degree of knowledge and understanding on that particular contemporary matter. For example, hukm on cryptocurrency, how many shariah scholars would have the absolute knowledge on the evolving tech of blockchain?
Thirdly, when judging matters regarding contracts and transactions, greater significance is given to the reason of the contract and meaning of the exchanges between contracting parties than to words and form. For example: If Ali says to Ahmad, I’m donating this t-shirt to you for S$2. Here, the donation is invalid, and the exchange is considered a sale contract even though the word “donate” is used.
With this backdrop, the hukm on whether buying HDB in SG is considered as riba is as follow:
1.If a person buys a HDB by paying it in full, without financing it through any riba-based debt (bank loan), it is permissible there are no syubha (suspicion) of its halal status. Since the exchange occurs between two different items (money for HDB housing), as highlighted in the first point.
2. If a person buys a HDB through interest-based debt finance (either bank loan or HDB loan), scholars have differing opinions on this due to what is highlighted in point #2 above.
2.1. Traditional scholars who mainly do not reside in Singapore and may not fully understand the nature of HDB housing policy and HDB loan structure view it as riba. The reason is because the Muslim is complicit in engaging a riba-based debt to finance their HDB purchase. These scholars would recommend SG Muslims to opt for rental houses since houses as necessities can still be derived from their utilities through renting.
2.2. Contemporary SG scholars view the permissibility of riba-based debt to finance HDB purchase as a necessity for SG Muslims. Since not owning a HDB in SG will disqualify SG Muslims from a lot of social-economic benefits and make them at a disadvantage in the community. Most importantly, there are no current shariah-compliant financing debt alternatives. However, they expressed to act in moderation on this matter.
2.3. IFSG views that buying a HDB through HDB loans will be more reasonable for our Shariah permissibility compared to a banking loan. The reason is espoused through the understanding of point #3 mentioned above.
2.4. When we buy a HDB, the transacting parties are us and the HDB Development board. And when we opt for a HDB loan, the transaction party will still be between us and the HDB development board. We view that this transaction arrangement is almost close to purchasing an item on differed instalment payment that is permissible is Shariah since there is not much difference (that may raise shariah concerns) in pronouncing a loan contract with interest when we are buying the product from the same vendor on deferred settlements.
2.5. On top of that, the government is a not-for-profit entity, and HDB Loan is created by the government to facilitate the community’s needs. This is in line with the shariah maxims of “the leader’s concern acts to his people should depend on people’s interest”.
This question is a three-part series and the answer is continued on the question, “If Riba’ is haram, does that mean we can’t take vehicle loans nor use insurance or deposits to beat inflation?”.
Wallahu A’lam.
